QROPS
WHAT IS A QROPS (QUALIFYING RECOGNISED OVERSEAS PENSION SCHEME)?
A QROPS is an overseas pension scheme that meets specific requirements set by HMRC. It must have a beneficial owner and trustees and can receive transfers of UK pension benefits. QROPS were introduced on 6 April 2006 as part of UK legislation, following an EU directive on the freedom of movement of capital and labour. Essentially, a QROPS is an offshore pension structured as a trust or contract. The tax residence of the beneficial owner or beneficiaries is crucial, as some countries do not recognise trusts.
WHO IS QROPS FOR?
A QROPS can be suitable for UK citizens who have emigrated permanently and plan to retire abroad, having accumulated a UK pension fund. Similarly, individuals born outside the UK but who have accrued benefits in a UK-registered pension scheme can transfer their pension offshore if they wish to retire outside the UK. However, it’s important to note that UK State Pension benefits cannot be transferred. Defined contribution, defined benefit pension schemes, and SSAS pensions can be transferred to a QROPS.
FLEXIBILITY OF QROPS
A QROPS does not need to be based in the country where you retire. You can transfer your pension to a jurisdiction of your choice and receive benefits in your country of residence.
Key Points about QROPS:
- Flexible Access: Like other private pensions, you can start drawing down from the age of 55 and have the flexibility to withdraw as much or as little as you like
- Investment Options: QROPS often provide a broader range of investment options and are not subject to the same restrictions as most UK pensions
- Beneficiary Options: Unlike defined benefit pensions, which usually offer limited inheritance options for spouses, a QROPS allows you to name any chosen beneficiary
- Multiple Currencies: QROPS can hold and invest in multiple currencies, appealing to expats who prefer not to receive their pension in pounds sterling
- Tax-Free Lump Sum: A QROPS can allow you to take an enhanced tax-free lump sum of 30%, compared to 25% from a UK pension
- Pension Consolidation: Like a SIPP, a QROPS can consolidate multiple pensions
- Overseas Transfer Charge: If you transfer into a QROPS and live outside the EEA, you will be subject to a 25% ‘Overseas Transfer Charge’ on the value
DISADVANTAGES & RISKS
- Investment Risk: You bear the responsibility for investment decisions, which can lead to potential losses if investments perform poorly
- Fees and Charges: QROPS often come with various fees and charges, which can reduce the overall value of your pension fund
- Loss of Guarantees: Transferring may result in the loss of valuable guarantees, such as a guaranteed income in retirement offered by some workplace pension schemes
- Complexity: Managing a QROPS can be complex, especially if you lack experience in investment decisions
For more detailed information on QROPS and to determine if it’s the right choice for your retirement planning, please get in touch with our advisors.
